Globalization in Growing Financial Markets as a Threat to the Financial Security of the Global Economy

Magdalena Redo, Marta Gebska
European Research Studies Journal, Volume XXIII, Special Issue 1, 335-355, 2020
DOI: 10.35808/ersj/1764


Purpose: The main aim of this article is to spread awareness regarding the scale and dynamics of the development of particular sectors of the financial market and financial turnovers, which threaten the stability of the economy. Design/Methodology/Approach: To achieve that aim, the following analyses were conducted. A comparative analysis of current and historical data of the Bank for International Settlements (BIS) and the World Federation of Exchanges (WFE) in terms of the number of assets allocated in selected sectors of financial markets as well as daily turnover. A content analysis for occurrences confirming growing financial imbalances and frequently occurring in the recent years deep crashes on key financial markets which are a threat to the stability of the global financial economy. Simultaneously, one aspect pointed out was the instance of the growing concentration of assets among individual entities and countries. Findings: The current position of the global economy is far from stable. It is a result of the uncontrolled explosion of development of financial markets and virtually generated profits which, by having been transferred to the world of the real economy, caused detachment of prices from their economic foundation in the recent decades which, in turn, contributed to the global economy's sensitivity to shocks as well as created extremely violent and deep crises with increased frequency. Practical Implications: Financial markets pose significant risks regarding a lack of control over the financier's world and threats to the global economy's financial stability and future civilization development rate. Originality/value: More and more capital on global markets significantly decreased its cost and increased acceptance of investment risk and underestimation, leading to its extremization – risk-taking phenomenon. It prompts even more debt, lowers business entities' vigilance, demotivates saving, reforms, and rationalizes actions among governments, banks, businesses, and citizens. It discourages share issuing and encourages increasing debt to finance business development – this can lead to the destruction of company values. Moreover, it reduces the power of economic policy.

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